Mukesh Patel.in
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international tax expert / columnist / author / speaker

HOUSING GAIN EXEMPTION!

Tribunals have held that capital gains from multiple houses and of multiple years can also enjoy complete tax holiday!

Section 54 and 54F of the Income-tax Act provide for an exemption in respect of long term capital gains (LTCG), where subject to fulfillment of prescribed conditions, a taxpayer makes investment either in the purchase or construction of a residential house.

   RELIEF FOR MULTIPLE HOUSES

In the case of ‘Rajesh Keshav Pillai vs. ITO’ (2011) 44 SOT 617 (Mum.), the taxpayer sold two separate flats and earned long-term capital gains. The taxpayer bought two different flats and claimed that the long-term capital gain was exempt under Section 54. The first appellate authority following the judgement of the Special Bench in ‘ITO vs. Sushila M. Jhaveri’ (2007) 107 ITD 327 (SB) held that the benefit of Section 54 was available in respect of only one flat and not two flats.

On appeal, the Tribunal held that though Section 54 refers to capital gains arising from ‘transfer of a residential house’, it does not provide that the exemption is available only in relation to one house. If the taxpayer has sold multiple houses, then the exemption under Section 54 is available in respect of all houses, if the other conditions are fulfilled. If more than one house is sold and more than one house is bought, a corresponding exemption under Section 54 is available. However, the exemption is not available on an aggregate basis, but has to be computed considering each sale and the corresponding purchase, adopting a combination beneficial to the taxpayer.         (more…)

EQUITY VERSUS TAXATION !

Though equity and taxation are often held as strangers,

Courts have ensured that they do not always remain so!

             Courts have been liberal in their judicial interpretations, while dealing with issues relating to exemption provisions, holding that “a beneficial section has to be construed liberally, having due regard to the object which it intends to serve.”

            In a recent matter that came up before the Punjab & Haryana High Court in the case of ‘CIT vs. Jagtar Singh Chawla’ [2013] 33 taxmann.com 38, the taxpayer had sold his property on 20.06.2006 for a consideration of Rs. 2.24 crores. The said amount was not invested in the capital gains account scheme by the due date of filing the return under Section 139(1) (i.e., 31.07.2007) and was instead used to purchase a new residential house on 31.3.2008. The taxpayer claimed exemption under Section 54F which was denied by the Assessing Officer & Commissioner (Appeals) on the ground that under Section 54F(4), the amount of the consideration which is not appropriated for purchase of the new asset before the date of furnishing the return of income had to be deposited in the “capital gains account scheme” before the due date for filing the return of income under Section 139(1). 

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I.T. SEEKS BIGGER ROLE FOR I.T.!

If your taxable income exceeds Rs.5 lakhs, E-filing of your Income-tax Return shall be mandatory from A.Y. 2013-14!

         The Income-tax (IT) Department is seeking to place increasingly greater reliance on Information Technology (IT). Under its notification issued on 1st May, 2013, the Central Board of Direct Taxes (CBDT) has made it mandatory for all taxpayers with total income exceeding Rs.5 lakhs to e-file their tax returns from the current Assessment Year (AY) 2013-14.

        Today, nearly 90% of India’s personal Income-tax collection is contributed by this group with incomes above Rs.5 lakh, although they comprise just 10% in number, an estimated 35 lakhs out of the total 3.50 crore taxpayers in India. This also goes a long way in building a strong database of the income and financial information and analysis of taxpayers in the country. Infact, through the FM’s budget speech this year, we got to know for the first time that there are only 42,800 persons in the country who have admitted taxable income over Rs.1 crore. We would not have got this information, without the e-filing database of the I.T. Department.

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TAX RELIEFS ON AGRICULTURAL LAND

Important amendments under Capital Gains Tax & Wealth-tax provisions under the Finance Act 2013 

Section 2(14) of the Income-tax Act, which defines ‘capital asset,’ excludes from within its purview an agricultural land situated in India at a place having a population of less than 10,000 as per the last preceding census or at an area not comprised within any municipal limits or within a prescribed distance from such municipal limits.

      The Finance Act 2013 has, with effect from F.Y. 2013-14, revised the prescribed distance as being within a range of upto 2, 6 or 8 kms. (such distance being the aerial distance) from the municipal limit, based on the population as described hereunder:

  • Where population is more than 10,000 but not exceeding 1 lakh, 2 kms.
  • Where population is more than 1 lakh but not exceeding 10 lakhs, 6 kms.
  • Where population is more than 10 lakhs, 8 kms. (more…)

THE MAGIC OF SUSTAINED SAVING!

 The golden secret of earning from saving is not just how much you invest, but also how long you invest! 

THREE GOLDEN INVESTMENT QUOTES

  • Managing your money requires more skill than making it.
  • Savings will not make you rich, only smart investments will. 
  • Plan your play and play your plan. Let it not be a ship without a rudder, floating where the tide takes it.

While Manan Patel a conscious investor started timely savings of Rs. 10,000 per month in a Systematic Investment Plan (SIP), his friend Chintan Shah was too preoccupied with his business to find time for planning his investments. Manan’s SIP has a track record of offering a 15% annualized return and thus he has calculated that he would become a ‘Crorepati’ reaping Rs.1.1 crores after 18 years of regular savings. Chintan wakes up 4 years late and also wants to catch up with his friend. However, he is just unable to believe how much his delayed decision is going to cost him when he is told that to earn the same target amount of Rs.1.1 crores in the remaining 14 years, he would be required to invest double the savings amount i.e. Rs. 20,000 per month. 

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TAX PLANNING FOR THE SALARIED!

You can enjoy a maximum take home pay by including these tax free allowances & perks in your annual pay package!

The Income-tax Act provides for a number of allowances and perquisites which have been notified as tax free and every salaried taxpayer must endeavour to negotiate his pay package in a manner that the same can include such tax free allowances and perquisites. This would ensure that he is able to take maximum take-home pay per month with the minimum deduction of tax. 

Some of the important tax free allowances and perquisites are listed here under: 

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INTEREST ON TAX REFUND!

Every taxpayer is entitled to receive refund within one year from the end of the financial year in which his return is filed!

      As per Section 244A of the Income-tax Act, a taxpayer is entitled to interest @ 0.5% for every month or part of the month, (6% per annum) from the first day of April of the assessment year to the date on which the refund is granted, where the refund arises on account of TDS or advance-tax payment. It needs to be borne in mind that as per the proviso to Section 244A, no interest is payable if the amount of refund is less than 10% of the tax payable by the taxpayer.

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ITAT EXPLAINS EDUCATION!

Holds continuing education and training programmes of Ahmedabad Management Association entitled to exemption!

Should the term ‘education,’ in the context of the definition of ‘charitable purpose’ under Section 2(15) of the Income-tax Act, be given such a narrow and restricted meaning, so as to include only formal school or college education? Can a public charitable trust pursuing the objects of continuing education, training and research on various facets of management and related areas be denied the benefit of exemption under Section 11 of the Income-tax Act, on the ground that its activities do not fall within the scope of education?

            These two very interesting and important questions recently came up for consideration before the Income-tax Appellate Tribunal (ITAT), Ahmedabad, in the case of Ahmedabad Management Association (AMA). 

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INVESTMENT WONDERS OF PPF!

Public Provident Fund (PPF) is a hot favourite amongst tax saving investments with an effective return upto 18.22%!

PPF enjoys the pride position of being a wonderfully attractive investment scheme offering total safety, a high degree of flexibility, reasonable tax free return and useful tax saving through the shelter of income-tax rebate. Let us take a bird’s eye view of these special attractive features of PPF:

 Total Safety: Enjoying highest security in terms of investment, PPF is perhaps the only asset which is free from any civil claim or attachment, even by a Court of Law. No wonder, there are people who have practically lost everything in the debt claims against them, except their investment in PPF!

 High Flexibility: Although the maturity period of investment in PPF is 15 years from the opening of the Account, the minimum annual investment required is only Rs.500 per annum, giving the investor freedom to invest as per his choice and available resources.  The maximum limit of investment is Rs.1,00,000 per annum.  The other attractive feature of PPF is that even after 15 years, the account can be renewed for a fresh term every 5 years.  This facility of extending the 5 year block period from 15 to 20 to 25 to 30 years and so on can be availed continuously as per the choice of the investor.  The privilege of one annual withdrawal from PPF after the initial 6 years period and even during the extended block period after 15 years as available to the investor can come extremely handy in times of need.

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YEAR END TAX MANAGEMENT!

With 31st March around, just ensure that you are not missing out on securing any tax saving & filing of your tax return! 

As the fiscal year 2012-13 ends on 31st March, it’s time for all income-tax taxpayers to take a quick look whether they have fully availed of the opportunities for tax saving via saving of specified investments and allocations. 

 TAX SAVING THE 80C WAY!

            ‘Be happy and gay, saving tax the 80C way!’  This should be the ‘magic mantra’ of all taxpayers. “My liquidity constraints do not permit me to invest,” some may retort.  But let this not be your excuse.  Infact, you should be prepared to even beg or borrow or secure a loan or gift or even draw out of your exempt income or accumulation, to make up for your investment limit of Rs.1,00,000 and thus plan to lawfully avoid your tax sorrow.  This is so, because Section 80C of the Income-tax Act does not require you to invest out of your ‘income chargeable to tax’.  This point can be better appreciated by the illustration hereunder:

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